Employment Law: Employee vs. Indepedent Contractor

What's the difference between an employee and an independent contractor?

Employee
Under common-law rules, anyone who performs a service for an employer is considered an employee if the employer can control what will be done and how it will be done.  This is true even if the employer gives the employee freedom of action.  What is important is that the employer has the right to control the details of how the services are performed.

Independent Contractor
Individuals such as doctors, dentists, lawyers, veterinarians, accountants, contractors, etc. who offer their services to the general public are generally considered independent contractors.  However, whether these individuals are always considered independent contractors depends on the facts of each case.  The general rule is that an individual is considered an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

An individual is not an independent contractor if he/she performs services that can be controlled by an employer.  This applies even if the individual is given freedom of action. 

Why does this matter?
If an individual is considered an employee, then the employer must withhold federal income tax, pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee.  An employer does not generally have to withhold or pay any taxes on payments to independent contractors.

Consequences for Treating an Employee as an Independent Contractor
If an employer classifies an employee as an independent contractor and has no reasonable basis for doing so, the employer may be held liable for employment taxes for that worker.  Also, if an employee is misclassified as an independent contractor, the employee can file Social Security and Medicare tax forms to gain relief.

If you are victim of employment related problems, contact Ambuter Law for your free case evaluation.